How to Profit From Theft by Governments
There’s a growing problem happening right now. Governments have spent like everything will always be in “growth mode” and therefore their income would always be steadily growing. However, the “real world” doesn’t work like that.
Right now due to massive job losses and a crash in real estate prices, many governments find themselves “cash strapped” as their treasuries are looking a bit bare.
So when their pockets start getting low on money, what do they do? They look to see who’s doing great and managing their businesses well and they go “steal” from them.
In this case it’s the resource companies that have done quite well. So now they’re eyeing them to soak some more money out of them through increased royalties & taxation and even in some instances…nationalization!
As recent as September, Venezuelan President Hugo Chavez ordered the nationalization of the gold industry.
Then back in June, Peru’s President Humala was elected on pledges to raise mining royalties and tighten state control over resources. This is important because Peru is the world’s 3rd largest copper producer. And these royalties (which are a nicer word for taxes) are estimated to take a $1.1 billion chunk out of these mining companies’ revenues.
Just last week, Zambia doubled some royalties on minerals. So as you can see, these are not isolated events.
In fact, according to Deutsche Bank, at least 11 countries like Australia and Ecuador have either raised or revealed plans to increase taxes or royalties on sales of resources such as gold and coal this year.
As an example, this month, Australia (the world’s biggest exporter of coal and iron ore) placed before lawmakers legislation for a 30% tax on profits for these two raw materials.
This will “steal” (I mean, tax) companies like Rio Tinto, BHP and Xstrata $11.3 billion over three years.
Now I know some people don’t “get it”. They say, “Yeah, tax the heck out of them. They can afford it. Rob from the rich and give to the poor, etc.)
But here’s the “real deal”. If you overtax these companies they lose incentive to maximize the mining of their resources since the governments either tax them severely (which means they really just start working for the government more) or they get fully nationalized which ends up being the same.
This means that these exporters are likely to slow down their investment which will slow down the mining process until governments aren’t so greedy.
When that happens, it causes the price of these “much needed” commodities to shoot through the roof.
Now, knowing that…in the end, who ends up paying? Everyone!
So if you initially think that you’re simply taking from the rich…you’re really looking at a huge tax on everyone in the future through higher raw material costs which will translate into higher inflation which means your money won’t go as far as it used to.
Now who is this good for? Not anybody!
This is why I hate government mismanagement of money. I hate it that when they mismanage their money and rack up huge debts that they come looking for the people who have stewarded their wealth properly and find a way to make it legal to steal from them because “they are the law”.
If I ran up huge debts and my income wasn’t covering it, it would be a crime for me to force my neighbors to give me 30% or even all of their income just because I’d not done well with my own.
Yet for some reason, it’s not a crime when governments around the world do the same. It’s still stealing any way you look at it even if they find a way to make it legal.
And in the end, their theft ends up costing everyone more money in the end. That’s the part these governments will never tell you.
So knowing all their schemes, there are two ways to protect yourself from them.
1) Buy the raw materials like gold, coal, copper, etc. that will rise in value through an ETF (GLD, KOL, JJC, etc.)
2) Buy the currencies that will benefit from the rise of these raw materials which are the “commodity-currencies” like the Australian dollar (AUD/USD or FXA).
By doing this, you’re adjusting your portfolio to fit their “evil schemes” so that it either doesn’t have an impact on your or it has a minimal impact upon you compared to those that didn’t know how to protect themselves from the robbery of governments.